For most people, the thought of paying off your mortgage early is an appealing one. Unfortunately, most people don’t know how to go about it without leaving themselves financially unstable. So it stays a distant dream. Read on how to learn strategies that will help you pay off your home mortgage faster.
There are plenty of reasons as to why you might be considering paying off your mortgage earlier, from an unexpected windfall to a promotion at work. The idea of paying off your mortgage then becomes feasible in these situations.
This article will explore a few benefits to paying off your mortgage early as well as the two main ways people go about it. You can visit Mortgages New Zealand or other websites for more detailed and reliable information about mortgages.
This is usually done when you’ve gained a significant amount of income in a short period of time that you usually don’t have access to. As a result, you now need to decide where you’re going to put the money, and mortgage payment comes to mind.
It’d be wise if before you go down this route you check if there are any early re-payment fees applicable to the mortgage. Sometimes it might just be a matter of waiting a few months for those fees until they no longer be applicable and you save an enormous amount of money in the process.
If you do incur the early repayment fee, it’s advisable to calculate whether it’s worth it or you need to switch to a different method.
Increasing Your Monthly Payments
Increasing your monthly payments is a way of getting around paying any early repayment fees. It is a good option for those who have received a raise in their income and for those who are looking to retire early or perhaps stay for an extended period in that particular home.
There are different ways of increasing your monthly payments in order to pay off your home mortgage faster. These include:
- Switching to A Bi-weekly Schedule: this is where you make a full extra monthly payment each year and will subsequently reduce the time on your mortgage.
- Increasing the Already Stipulated Amount: you increase the amount you pay each month by a certain amount. With this option, make sure to consult your lender to ensure that this extra payment is directed towards your principal and not your interest.
- Refinance the Mortgage to A Shorter-term: this is to change the terms of the mortgage agreement and lower the years stipulated to pay off the loan.
Benefits of Paying Off Your Mortgage
Listed below are the four main benefits of paying off the mortgage early.
1. Become Debt Free
In the case where your only debt is your mortgage, paying it off may leave you debt-free. The benefits were:
- Increased financial security
- Less anxiety
- More financial security
Being debt-free now, you can tap into the equity of your home if you require further finances in the future.
Total ownership is a very good motivator to pay off the mortgage debt quicker. In many situations, an individual might not be sure of their financial situation in the coming four to five years. However, they have access to adequate money in the short term that would allow them to pay off their mortgage debt in a timely fashion.
It’s wise to pay off the mortgage in a situation like that. There’s nothing worse than beginning to fall back on payments and risk foreclosure on your home. Especially with the Covid-19 pandemic causing uncertainty everywhere and destabilizing incomes.
3. Peace of Mind
The stress that comes with having debt can often be overwhelming. Paying off your mortgage faster could be in response to relieving yourself of that stress.
The freedom that comes when you no longer have any mortgage payments being deducted from your income month to month is a powerful reason to pay it off faster. Whilst not beneficial in strictly financial terms, it’s an important point nonetheless.
4. Reduces Your Total Loan Cost
A benefit to paying off your mortgage early is that it reduces the overall loan cost you initially incurred, especially if your loan term is still quite new.
There’s a significant amount of interest that is included in your mortgage payments. When you pay it off early, this interest isn’t charged to you anymore as you’re no longer required to honor the principal payments that the interest payments were attached to. This could save you a big chunk of money in the long term and open you up to different options financially.
To be honest, there’s no right or wrong answer if you want to pay off your home mortgage faster. In most cases, the decision is situation-specific to what you plan to achieve in the long term. It’s also advisable to talk to a mortgage advisor about the steps that you could take that would suit your situation.